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Tuesday
January 29th
2013

A DELUSIONAL & DYSFUNCTIONAL STATE

 

 

SPECIAL GUEST HOST: CHARLES HUGH SMITH , Author & Publisher of OfTwoMinds.com

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A DELUSIONAL & DYSFUNCTIONAL STATE

23 Minutes, 25 Slides

To come to grips with our current economic problems we should first consider risk and whether real risk is being exposed and discussed in an open and transparent fashion. If it is, we can begin a public dialogue on solutions. If it is not, we need to ask the question why not?

When risk is masked, cloaked, hidden or mis-stated then you are going to formulate poor public policy. By masking risk we will consequentially become delusional about the associated cost, consequence and elevating level of that risk.

Risk and cost are being hidden from us through unprecedented Monetary Malpractice, which by artificially lowering interest rates for a prolonged period, is mispricing risk, fostering malinvestment and allowing the economy to become delusional and dysfunctional through moral hazard and unintended consequences.



Financial Repression, as a central reason for hiding risk, is forcing the public to take on hidden and elevated risk in pursuit of ever shrinking yields.

Unfortunately the public is acting out what Charles Hugh Smith refers to as the "Spoiled Teenager Syndrome" within what he describes as the "Parasitic Financial Sector". A sector that now commands over 30% of corporate profits, 44% of the equity markets and 5.2% of GDP. A sector where the neo-liberal supporters of the central state, knowingly or unwittingly, both enable and enforce its predatory practices.

This sector has fostered the "Spoiled Teenager Syndrome" and is creating two fundamental problems. First it is not a productive use of capital and is bleeding productive capital from the US economy. Secondly, it is capturing the best and brightest in the workforce. As a leading Chinese government economist recently observed:

"In America the best and brightest are not creating products that people around the world want, but rather are engaged in trying to pick the pocket of others"

PSYCHOLOGY OF DELUSION 

As humans we prefer illusion to the risk of adaptation. Much has been written about cognitive biases and errors, for example Confirmation Bias (seeking out data that supports our positions). Other well-known cognitive biases include:

  • Positive expectation bias
  • Neglecting probability
  • Post-purchase rationalization
  • Observational selection bias
  • Bandwagon bias
  • Projection bias (everyone is like us)
  • Anchoring effect (is it really 20% off, or is “20% off” the retail price?)

These fail to describe the tremendous appeal of delusion. Remaining in a delusional state feels safer than risking the disruptive consequences of adaptation, innovation and change. So we cling to delusion as the “safer bet.”  But decisions based on illusion necessarily yield catastrophic consequences.

Politicians understand that people react negatively to unwelcome realities, and so they sustain a state of delusion with short-term politically expedient “kick the can down the road” policies and continual reassurances that the increasingly unstable system is permanently stable.

OUR DELUSIONAL & DYSFUNCTIONAL STATE

  • False Entitlement Program Promises,
  • False Expectations of the sustainability of the current standard of living.
  • False Employment and Career Expectations,
  • False Expectations of the value of deficit spending and money expansion,
  • False Beliefs in the levels of equality and opportunity,
  • False Beliefs in the motivations and success of government public policy initiatives

 

 

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Saturday
JANUARY 26th
2013

OFF-BALANCE SHEET DECEPTIONS

 

SPECIAL GUEST HOST: JOHN RUBINO, Author & Publisher of DollarCollapse.com

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OFF-BALANCE SHEET DECEPTIONS

23 Minutes, 26 Slides

 

The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP.

For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure. 

… if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn’t be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities.

Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation’s debt and deficit problems be solved. 

If that was only the problem we could consider it frightening. However when you consider all the off-balance sheet deceptions going on it becomes truly horrendous.

    • Unfunded Liabilities 
    • Contingent Liabilities
      • Guarantees
      • Contractual Obligations
    • Special Purpose Entities
      • PPP - Public Private Partnership
      • PFI - Private Finance Initiative
    • SWAPS

 

 
 

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Tuesday
JANUARY 22nd
2013

WHY WE ARE UNGOVERNABLE

 

SPECIAL GUEST HOST: JOHN RUBINO, Author & Publisher of DollarCollapse.com

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WHY WE ARE UNGOVERNABLE

25 Minutes, 31 Slides

 

Once a country’s total debt exceeds a certain level, the required interest payments become a headwind, making economic growth virtually impossible. Since economic growth is a foundation to political stability, excessive debt pushes a free society towards the limits of governability. This is now the case in most of the developed world. As a consequence we are quickly losing our ability to democratically govern ourselves.

We are irresponsibly and expediently creating infinite amounts of the world’s reserve currency out of thin air in desperate hope of creating short term artificial economic growth. Unfortunately, this simply amounts to running up the balances on an unlimited credit card, instead of controlling ourselves like adults. When we do this we stop prioritizing our needs versus our wants. Like a spoil child the public quickly becomes conditioned to getting what it wants and expects, versus caring about the costs and consequences.

Politicians are then left the intractable problem of disciplining an unruly household wanting more, when there is less and less available within the sovereign household purse to give. Unfortunately, our pandering political parents have been no better and have been using the debt build up to:

  • Build a global military empire that costs about a trillion dollars a year,
  • Create cradle to grave welfare state that costs a trillion dollars a year,
  • Develop an aristocracy of bankers and politicians who, because they get first crack at those newly-created dollars, have become all-powerful. In today’s America, Goldman Sachs, the Treasury Department, and the Fed are just divisions in the same profit-maximizing organization.

Our politicians are no longer leading. Out of campaign finance necessity, they have become obedient followers of party doctrine, political polls, and powerful media masters. Additionally, excessive debt produces political polarization and gridlock, which makes fiscal policy impotent. This leaves monetary policy as the only remaining tool. A tool the political process does not control, but unelected central bankers do.

We will likely continue to be delusional and hide our problems from ourselves, but we can no longer hide the effects. As a consequence the public has lost confidence in the system and we now have an insidious Crisis of Trust. A Crisis of Trust in our leadership and the system.

As a consequence, every major country will now have no choice but to monetize its debt going forward. 

Expect the results to be:

  1. Currency Wars
  2. Rising Political Instability
  3. Rising Inflation (currency depreciation)
  4. A Bond Market Debacle
  5. A Crack-up boom followed by devastating collapse of the U.S., Europe, Japan
 

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Saturday
January 19th
2013

 

 

PART I - Tuesday 01-15-13

PART II - Thursday 01-17-13

PART III - Saturday 01-19-13

SPECIAL GUEST HOST:Ty Andros , President, Traderview, Author & Publisher ofTedbits Web Site & Newsletter

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Part I 27 Minutes, 18 Slides

Part II 26 Minutes, 18 Slides

Part III: 29 Minutes, 16 Slides

 

PART I

  • Secular Depression continues: Death er debt spirals
  • Inflate or Die!
  • Economic growth to stay negative in REAL TERMS. Compounding annually!

PART II

  • Volatility and complacency at multi decade extremes
  • Bombs er Bonds, when will the bubbles POP?
  • Unholy alliance: Banksters, Big Business, trade unionism and Government = Rampant entrenched FASCISM!

PART III

  • Never ending story: money printing
  • Socialists smelling the end zones, Something for nothing societies are like locusts! Eat the RICH!
  • Precious metals: ready to ROCKET

PART I

 

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PART II

 

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PART III

 

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Saturday
JANUARY 12th
2013

PART I - Tuesday 01-08-13

PART II - Saturday 01-12-13

 

SPECIAL GUEST HOST: JOHN RUBINO, Author & Publisher of DollarCollapse.com

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with John Rubino

Part I: 24 Minutes, 18 Slides

Part II: 22 Minutes, 20 Slides

THE FOLLOWING ARE EXPLORED

PART I

  • FISCAL AUSTERITY and MONETARY EASE both ramp up a notch. 

    FISCAL AUSTERITY

    • In the US, especially at state and local levels, cutbacks will accelerate.
    • In Europe, the periphery has no choice but to cut drastically, which will necessarily slow Germany and France. 

    MONETARY EASING

    • Japan's new government will engineer dramatically easier money in the form of asset purchases probably.
    • The US Fed just announced an expansion of QE 3 (or is it 4?).
    • The ECB will have no choice but to go along in 2013. Currency wars scenario playing out according to script. 
  • State and local PENSIONS IMPLODE

    • If calculated honestly the real deficit is $5 trillion rather than the reported $1 trillion, and this will be revealed during the next big correction -- 2013?
    • Leaves the Federal Reserve with no options other than to further accelerate monetary liquefacation in 2013.
  • Rising COMPLEXITY and Exponentially Greater FRAGILITY
    • We're adding debt, especially in the form of derivatives and unfunded liabilities, so the system is getting vastly more complex.
  • CYBER -War /Terrorism

    The US has built its industrial/communications/power/government networks on the backbone of the Internet, but the Internet isn't designed for secrecy. So industrial and military secrets are being stolen wholesale, AND the Russians and Chinese have penetrated our power grid and have the ability to shut it down at will.

America the Vulnerable

  • Expansion of the POLICE STATE 
    • The combination of drones for domestic security, more sophisticated signal capture and analysis tech, and willingness of government to ignore the bill of rights will continue to shift power from individuals to the central government.
    • Big Brother emerges for real in 2013?

PART II

  • DEBT JUBILEE
    • The numbers don't work, which means they have to be changed. We're trying to do this via inflation, but this works mostly by encouraging more people to borrow, which defeats the long-term purpose.
    • An alternative version has the Fed and other central banks simply cancelling the bonds they've been buying, thus cutting the national debt by several trillion dollars. This will eventually appeal to desperate politicians because it sounds like the free lunch they've always believed existed.
  • END OF PETRODOLLAR
    • 2013 might be the year it really gets going.
    • China's aggressive dumping of treasuries might be the catalyst. 

PART I

 

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PART II

 

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Saturday
December 22nd
2012

 

 

SPECIAL GUEST HOST: CHARLES HUGH SMITH , Author & Publisher of OfTwoMinds.com

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with Charles Hugh Smith

25 Minutes, 29 Slides

THE FOLLOWING ARE EXPLORED

  • Rising SYSTEMIC FRAGILITY is increasing the odds of an “unexpected” breakdown.
    • it is now reaching a "Threshold of Vulnerability".

  • The FED LOSSES POLITICAL CAPITAL in 2013.
    • We are witnessing a reduced impact of each QE version,
    • Expect Hope to Turn to Fear when this occurs.
  • ECONOMIC STAGNATION and PERMANENT ADOLESCENCE
    • Using the Japanese Model, diminishing opportunities are resulting in new youth behavior.
  • Probabilities of a STOCK MARKET DECLINE increase.
    • Revisitng the Coppock Killer Curve.
    • The debate about recession or no recession is meaningless; incomes are declining for most households and corporate profits will take a hit as the global slowdown increases and the US dollar rises.
  • The VELOCITY OF MONEY dooms the Fed’s liquidity/stimulus policies.
    • People either are afraid to invest, don't see any viable investments or it is FEAR and a growing Crisis of Trust.
    • The Fed has done its best for four years to push investors into risk assets (by lowering yields on safe savings to near-zero) and to push households to borrow and spend more. The fundamental failure of their policies is that all the liquidity is simply now becoming “dead money.”
  • INCOME is the foundation of real economic growth. It is declining in real terms.
    • Nominally income appears to have grown 24% since 2000. Adjusted for inflation, it has declined by almost 10%.
    • However, the Middle Class have seen their income decline by MORE than 10%
  • SMALL BUSINESS—the Engine of Growth—is in a Long Term Structural Decline.
    • Uncertainty, higher taxes and regulatory fees/costs have eroded the incentives to risk capital and the time to start and expanding a small business.

 

 

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Saturday
JANUARY 1st
2013

 

 

SPECIAL GUEST HOST: JOHN RUBINO, Author & Publisher of DollarCollapse.com

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with John Rubino

33 Minutes,31 Slides

As a regular MACRO ANALYTICS Co-Host, John Rubino has recorded over 22 session in 2012, each averaging close to 30 slides for over 600 slides and 8-10 hours of viewing.

ALL OF THE FOLLOWING ARE EXPLORED

It all starts in 1971 when the US cut the last remaining link between the dollar and Gold resulting in effectively an unlimited credit card for the US government. it meant for the government it could buy what it wanted without prioritizing. It could build a military budget bigger than the next 17 military budgets combined and now costing $1T/year. It meant it could promise an entitlement / welfare state that costs another $1T/year. It meant it could promote a consumer culture that glorified "buying now and paying later". The US quickly became the world's biggest debtor nation.

THE RESULT is the US has had four straight years of $1T deficit. Debt that was 1.5X GDP in 1980 is now 3.5 X. The average family of four now officially owes $700K of US government debt and if calculated properly is closer to $2M/family. The US Debt is now so large that there is no painless way of returning to sound financial footing.

THE RESULT is the unintended consequences of a growing police state and the government becoming more oppressive and authoritarian to protect 'our birthright' and protect the elites. Americans are becoming less and less free, less and less rich - at an accelerating rate.

THE RESULT is a Global Imbalance where other nations have become creditor nations which they likely weren't prepared for. Consequentially it has lead to governments trying to exercise more control as the complexity of globalization has caused increasing numbers of coordination problems. Global systems are fragile, untested and not robust and now leaves the world exposed to any shock quickly unraveling the financial and economic systems.

DERIVATIVES

The lynch pin may be derivatives. They have grown since the financial crisis. Complex systems says you must look at the $640 Trillion notional value not the 'net'. A mere 2-4% adjustment could cause a collateral adjustment that the world is incapable of adjusting to.

2013 IS CLEAR - The Central Banks are going to print "like crazy!"

 

 

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